Author Topic: First Time RE Investing in the Time of Coronavirus  (Read 797 times)

Bumblebee7

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First Time RE Investing in the Time of Coronavirus
« on: April 20, 2020, 09:57:40 PM »
DH and I are considering purchasing our first rental property-- at an auction. During coronavirus. Are we crazy?

Key Stats:
  • Auction starts at $150k, monthly rent would be between $2k-$2400, monthly mortgage + taxes + insurance would be about $1100.  Similar properties nearby valued between $300k-$350k
  • No liens, no occupants, no buyer's premium
  • Some updating and cosmetic repairs needed, but looks to be in decent shape (though we'll obviously know more once we do a thorough inspection)
  • Close-ish to a large University and to metro in Maryland. We would want to market to college students-- buy now, renovate in the summer, have it ready for the fall semester

I think the max would be $170k for bidding. We put down 10% of that plus closing costs plus maybe $10k in repairs. DH will do the renovations himself (we live in the area). If we do an inspection and there's serious/structural issues we won't bid.

This would be our first property and I am nervous. Timing is so terrible with everything that is happening. I'm nervous about the auction component and getting ripped off. Does this seem like a good deal and option for first-time RE investors? Any thoughts, advice, or words of encouragement would be so appreciated!

rothwem

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First Time RE Investing in the Time of Coronavirus
« Reply #1 on: April 21, 2020, 06:07:49 AM »
How are you going to do 10% down for an investment property? Most loans require 20-25% for a non primary residence.

Also, college kids. Sure, you’ll get paid every month but you’ll have to earn it. You get several non-related young people in a place together and nothing gets maintained, plan on replacing carpet and painting the entire place on every turnover at minimum.

Edit: I’m talking about undergrads, btw. Grad students are absolutely excellent tenants in my experience. Especially ones in the sciences—They usually get a stipend, don’t have tuition, and they’re generally more intelligent and responsible than other people with $20k/year salaries.
« Last Edit: April 21, 2020, 06:12:12 AM by rothwem »

Another Reader

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Re: First Time RE Investing in the Time of Coronavirus
« Reply #2 on: April 21, 2020, 06:58:00 AM »
I don't think you understand auctions.  An auction typically requires cash and the property is sold to the highest cash bidder.  There is very little distress in the real estate markets right now, so most auctioned properties go for close to current market value.  If you are looking at Auction.com, don't waste your time.  That site is set up to maximize the return to the seller. 

Dicey

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Re: First Time RE Investing in the Time of Coronavirus
« Reply #3 on: April 21, 2020, 07:18:32 AM »
I'd be much more inclined to focus on equities than real estate right now (and like AR, I'm a landlord and always scouting for my next property, even if I'm not). I would also want to know if youre currently maxing out your 401k/HSA/Roth and whatever else you're eligible for. If the answer to any of those is no, then my answer is: Hell, no! Additionally, if you have any kind of consumer debt or high-ish interest student loans, my answer is a polite #getthefuckouttahere.

And auction = cash.

See also: A fool and his money are soon parted. Especially at auctions.

SndcxxJ

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Re: First Time RE Investing in the Time of Coronavirus
« Reply #4 on: April 21, 2020, 07:24:51 AM »
Another Reader is right to warm about auctions.  Property generally goes for market value, auction or not, if your region is efficient.  Not all auctions are equal, so make sure to understand this one.  Some just allow the right to offer a contract to the seller, which they do not have to agree to.  Some don't allow time for obtaining a loan and need all cash within a small amount of time, often days.  My other concern is if there is a current occupant? If so you will need to evict (or come to some other agreement, like cash for keys) which in many areas is not happening right now.
I don't want to discourage you from getting into real estate, I'm very bullish on it and encourage you to try, but make sure you are going into it with eye wide open.

AM43

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Re: First Time RE Investing in the Time of Coronavirus
« Reply #5 on: April 21, 2020, 08:44:41 AM »
Real state investor here. Been at it over 20 years.
Auctions are mostly waste of time.
I bought one of my properties in 2009 and during that time there were countless auctions and bank sales because of the people that lost their houses during recession and very few houses were offered where it would actually makes sense to buy it.
The whole idea of investment property is to purchase it for as less as possible to maximize your returns.
Why would I want to outbid 10 other guys and pay much more for it?
Why would I want to end up paying for that property almost as much as market price?
I ended up buying property directly from bank and they were very happy to negotiate.
Auction= Waste of time.


theoverlook

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Re: First Time RE Investing in the Time of Coronavirus
« Reply #6 on: April 21, 2020, 09:14:40 AM »
I've had luck buying at auction, once, and also seen plenty of houses go for as much or more than they would have on the open market. Keep in mind the "opening bid" has no relationship to how much it will sell for. You should absolutely look into the requirements for payment and whether the house qualifies for financing, but I think it's worthwhile to at least pay attention to how much it sells at the auction even if you don't end up buying it. It's a good learning tool to pay close attention to the auctions for a while. When I was planning to bid on a foreclosure house at a sheriff's sale, I went to an auction ahead of time (back when they were in-person auctions) and paid attention to specific properties and watched how things went just to get a feel for things. You can do the same thing with online auctions; pick a few houses that interest you that will be going up for sale before your target house and see what the bidding does.

If you've never bought anything (house, tools, horse, whatever) at auction then you have a lot of interesting learning ahead!

DIYguy

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Re: First Time RE Investing in the Time of Coronavirus
« Reply #7 on: April 29, 2020, 10:25:58 PM »
This might be a wild coincidence, but I have been running calculations on rentals in the Maryland area near the University and a property just like that seemed to glow. Sadly, only after did I realize it was an auction and not actually listed for 150k. If by some chance we have stumbled upon the same property I would caution you as many students do not live that far from campus especially as car traffic is more and more discouraged and there are no university buses in that area. I should have prefaced this with I am no expert, but went to that university and now live in the area. Definitely could still be a good investment, but going to be all about the initial investment. There was a mandatory 10% deposit to secure your winning bid, but you would have to check the other terms of the auction! Best of luck and hope you find the right spot!

Kl285528

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Re: First Time RE Investing in the Time of Coronavirus
« Reply #8 on: April 29, 2020, 10:45:57 PM »
I would also consider carefully whether there will be students going to actual college in the fall, and if that would impact your rental demand, or ability to carry this property. Covid-19 might eliminate fall semester of 2020? Just sayin'